Lafarge India's assets may land in local companies’ bag

Mexico’s Cemex and China’s Anhui Conch Cement Company, the largest cement makers in the Americas and Mainland China, respectively, have not made the final cut.Arijit Barman&Baiju Kalesh | ET Bureau | July 08, 2016, 07:44 IST

MUMBAI: The race to acquire one of the most prized cement businesses in the country is now between three local players. Nirma, Ajay Piramal Group and JSW Cement — with its private equity partners Bain Capital and CVC Capital Partners — are the final candidates shortlisted to take over the 11 million tonnes per annum (mtpa) Indian portfolio of Lafarge.

Mexico’s Cemex and China’s Anhui Conch Cement Company, the largest cement makers in the Americas and Mainland China, respectively, have not made the final cut, said multiple sources in the know. Interestingly, the Chinese were the highest bidders in the non-binding negotiation stage but subsequently submitted a very low bid, said the sources.

The deadline for the submission of binding offers was July 4. The three companies shortlisted have been called to London to meet the Lafarge brass for one-on-one management meetings. A final decision is expected in a week following which Lafarge will enter into exclusive negotiations with the chosen party.

One of the sources mentioned above said Nirma may have emerged as the most aggressive bidder at this stage but the final decision may be based on a combination of financial, operational and strategic factors. This, however, could not be independently verified. The selected bids are in the range of Rs 8,500-9,000 crore.

The three Indian players have tied up financing. Nirma is being bankrolled by Credit Suisse and BNP Paribas along with a clutch of Indian banks and NBFCs. Standard Chartered Bank is backing Piramals who at this point are going solo after initially tying up with Goldman Sachs.

Other than the bulge-bracket PE partners Bain and CVC, Sajjan Jindal-led JSW Cement is believed to have teamed up with Barclays and Deutsche Bank among others for acquisition financing. “JSW Group is continuously looking for accretive ways to expand its business operations and the Lafarge deal is one avenue that the group is currently evaluating,” a company spokesperson told ET. Spokespersons from Lafarge, Bain, CVC Capital Partners and Piramal Group declined to comment.

Mails sent to Nirma CFO Rajendra Jashipara remained unanswered.

DEAL LOGIC

In February, Lafarge had agreed to sell its entire operations in India after a regulatory hurdle over transfer of mines derailed its plans to divest two of its assets to Birla Corp for Rs 5,000 crore. Exiting the entire business was alternative remedy for the merger of Lafarge and Holcim's India operations. LafargeHolcim's India presence is via three subsidiaries — Lafarge India, ACC and Ambuja Cements. Post divestment of Lafarge's 11 mtpa capacity, the merged entity would have a total capacity of about 60 mtpa.

A key promise to push the mega merger through was also the delivery of 1.4 billion euros in annual savings within three years, as the company expects its industry-topping size to help overcome a slowdown. India contributes 12% to its revenues. With the competition regulator — Competition Commission of India — barring several leading industry players and marquee private equity funds from participating in bidding process, it has become a unique opportunity for relative newcomers like JSW Cement, debutants like Piramals or smaller players like Nirma who have struggled to grow organically to leapfrog into the big league. Nirma, for example, got stuck in litigation over environmental clearances for their proposed 2 mtpa greenfield unit in Gujarat.

On the other hand, Lafarge in India is a ready platform with multiple plants across 5 states, 71 ready-mix concrete (RMC) units, powerful brands that will migrate to the new owner along with sales and marketing infrastructure and operating teams.

JSW Cement, currently spearheaded by Sajjan Jindal's son Parth Jindal, is a new entrant in the sector with a 6.4 mtpa portfolio with plans to almost treble that to 20 mtpa by 2020 largely using an industrial byproduct ‘slag’. Lafarge being the biggest slag cement player in east India is a strategic fit for the company.

Piramals are looking to diversify into cement as a new business opportunity to branch into a sunrise sector.

They have teamed up with Sumit Banerjee, former vice-chairman of Reliance Cement who was also CEO of infra businesses at Reliance Infrastructure, for the Lafarge acquisition.